Washington, DC — Speaking Notes by Wamkele Mene, Secretary General of the African Continental Free Trade Area (AfCFTA) Secretariat, at the Thunderbird School of Global Management
PROTOCOLS
- Dr. Sanjeev Khagram, CEO, Director General & Dean,
- Your Excellency, Hilda Suka-Mafudze, African Union Ambassador to the USA,
- Prof. Landry Signe, Managing Director and Moderator,
- Distinguished Guests,
- Ladies and Gentlemen
Good Afternoon
1. It's great to be with you, and I look forward to our conversation.
2. At the outset, I wish to express my thanks for your kind invitation.
3. It is, indeed, my pleasure and an honour to deliver a keynote statement in my capacity as the first Secretary General of the African Continental Free Trade Area (AfCFTA).
4. I wish to commend the Thunderbird School of Global Management for organizing this event, which throws the spotlight on the AfCFTA, whose operationalisation has brought about an exciting period in Africa, with high hopes and high expectations.
5. Indeed, it is an issue that is of critical importance for Africa to achieve inclusive and sustainable economic growth, and to meet the challenges of development in the 21st Century. With the AfCFTA, Africa has a once in a generation opportunity to chart a new course towards a more inclusive, and more sustainable future.
6. This is why I am particularly delighted we are having this conversation on "The Promising Future of Africa in the World Economy Under the AfCFTA".
7. There is a lot to be hopeful about with the advent of the AfCFTA and its promise to boost intra-Africa trade, spur industrialisation, diversify national economies and create jobs for the teeming population of Africa. The AfCFTA will also support the continent's post-Covid-19 economic recovery and sustained development.
8. As you may well know, trading under the AfCFTA preferential regime was launched on 1 January this year, marking a significant milestone for intra-African trade, which currently stands at a low of up to 18%.
9. Africa intends to reverse this "historical anomaly", where most of the trade undertaken by African countries is with the rest of the world, and involves primarily raw materials exports, inclusive of extractive materials like oil and minerals, while importing manufactured goods, such as automobiles, electronics, and pharmaceuticals, among others.
10 .This is, obviously, one of Africa's major challenges for development and the AfCFTA seeks to correct it.
11. This has become more pressing given that intra-Africa trade is much more diversified, with high shares of non-traditional exports and manufactured goods, signaling a huge potential of intra-African trade to support Africa's industrialization and structural transformation.
12. Before the AfCFTA, African countries imposed and faced relatively high tariff barriers when trading within the continent, with an 8.7% average protection.
13. The AfCFTA promises to change this by lowering the cost and effort of trading between member nations.
14.The removal of import duties on, eventually, 97% of tariff lines, will considerably improve market access between African economies which is expected to bring significant increases in intra-trade flows across the continent.
15.This will be further boosted by measures to address non-tariff barriers, and the provision of a dispute resolution settlement regime that will expedite the resolution of any trade disputes that may arise.
16.The AfCFTA will standardize trade rules and regulations. Time and money were frequently wasted due to the uncertainty and guesswork associated with intra-regional trading. Standardization eliminates the inefficiencies related to intra-regional trading and gives State Parties the freedom to build trade relationships with neighbouring countries. The establishment of the AfCFTA can, therefore, help spur inter- and intra-African trade.
17.While full implementation of the AfCFTA is expected to take several years, the optimism about its ability to boost intra-African trade is perceptible, and rightly so.
18.The World Bank projections, for example, show that the volume of intra-African trade will grow significantly by 81% by 2035, with an increase in total African exports by 29%. The UNECA's study also point to an increase in intra-African trade of 52% over a 10-year period.
19.As you will agree, intra-African trade is not automatically a zero-sum game, where some State Parties can only benefit if others lose out, but can be a win-win situation where all African countries benefit together.
20.The AfCFTA also offers an opportunity to boost industrialisation across Africa. It offers numerous manufacturing opportunities such as agro-processing, clothing and footwear, automotive, pharmaceuticals, among others.
21.As you may well recall, in the immediate post-independent period, most African countries pursued a state-led import substitution industrialisation strategy. This strategy, however, failed due to a number of factors including, a lack of commitment, mismanagement, collapse in commodity prices and an absence of clear industrial development planning.
22.Consequently, Africa is less industrialised today, than it was in the 1970s. The share of the manufacturing sector in Africa's GDP is now about 10%, against 15% in the 1970s. Africa's contribution to global manufacturing output has declined from 3% in the 1970s to about 2%.
23.The literature, however, shows that almost without exception, countries that have sustained rapid economic growth over time, including the Asian Tigers and China, did so on the basis of a strong manufacturing sector.
24.Africa, therefore, must industrialize to transform, add value and promote trade through greater integration into regional, continental, and global value chains and create jobs in order to take the bulk of its population out of poverty.
25.Africa needs to industrialize to create jobs. The population is young and growing fast, and with a population of 1.3 billion, it is the second highest of any region after Asia. Due to rapid rural-urban migration the population in cities will triple by 2050. If there are no productive jobs for these people, the fight against poverty will be lost given that the most important determinant of whether someone in Africa is in poverty, or not, is whether they have a job.
26.The data show that 10 to 12 million young Africans join the labour force each year, yet the continent creates only 3.7 million jobs annually. By 2035, more young people will be entering Africa's workforce each year than in the rest of the globe combined, according to the IMF. Many countries, businesses and organisations have begun to address this problem, using tools from progressive policy-making to innovative finance. However, over 60 percent of young people across Africa still remain unemployed.
27.When countries in North America, Western Europe and Asia experienced similar demographic pressures in their past, industrialization enabled them to create jobs and welfare simultaneously.
28.So, despite failing to industrialize in the past, the AfCFTA affords Africa a new window of opportunity.
29.The AfCFTA agreement provides for the promotion of industrial development through diversification and regional value chain development, agricultural development and food security.
30.This is imperative given the low levels of investments in industrial production, which is also a major contributor to the low percentage of intra-Africa trade.
31.And the prospects are bright. A study report by the World Economic Forum, 2021, indicates that, if, successfully implemented, the agreement would increase African exports by $560 billion, mainly in the important manufacturing sector. This would create requisite jobs for Africa's young populations.
32.Moreover, the Mo Ibrahim Foundation estimates that if AfCFTA works as intended, it could generate combined consumer and business spending of $ 6.7 trillion dollars by 2030. It will also transform markets and economies across the region, leading to the creation of the needed downstream processing industries and expansion of key sectors.
33.Furthermore, the AfCFTA provides an unprecedented platform for economic growth of the continent.
34.According to a World Bank study report, if implemented fully, the AfCFTA could boost regional income by 7% or $450 billion, speed up wage growth for women, and lift about 100 million people out of poverty by 2035.
35.Most of the AfCFTA's income gains are likely to come from measures that reduce red tape and simplify customs procedures. Tariff liberalization accompanied by a reduction in non-tariff barriers would boost income by 2.4 percent, or about $153 billion. The remainder, $292 billion, would come from trade-facilitation measures that reduce red tape, lower compliance costs for businesses engaged in trade, and make it easier for African businesses to integrate into global supply chains.
36.Implementation of the agreement would also spur larger wage gains for women (an increase of 10.5 percent by 2035) than for men (9.9 percent). It would also boost wages for skilled and unskilled workers alike - 10.3 percent for unskilled workers, and 9.8 percent for skilled workers.
37.At the end of the day, it is by promoting economic growth through trade and investment that a fiscal space will be created to address the continent's demographic challenges, while advancing structural transformation, i.e., dismantling the 'colonial legacy'.
38.The Covid-19 pandemic has had a devastating impact on the economies of African countries, with the continent experiencing its worst recession in over 25 years last year.
39.The long-term effects of the economic downturn threaten to lead to a reversal of the gains made in poverty reduction and human development over the past decades. Estimates by the multilateral institutions show that up to 40 million more Africans could fall into extreme poverty in 2020–21, pushing up the total to over 400 million people, or about a third of Africa's population, in 2021.
40.While African economies are set to recover from the recession this year, indications are that this growth will be moderate due to the limited room of governments to support their economies.
41.In this environment, free trade provides a stimulus, and the operationalisation of the AfCFTA can, thus, stimulate Africa's post-Covid recovery. This will provide a necessary economic boost to African economies, increasing employment opportunities and incomes, and accelerating growth.
42.In the longer term, it will enable African markets to build resilience in their supply chains thus reducing reliance on external markets, and, therefore, act as a buffer against global economic shocks in the future.
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43. As I conclude, I would like to stress that the promise of the AfCFTA is great. A continental trade bloc of 1.3 billion people; a combined GDP of US$3.4trillion; and the potential to lift 30 million people out of extreme poverty are highly desirable and needed goals, especially in light of the reversal of progress in poverty reduction and massive economic disruption brought about by the Covid-19 pandemic.
44.Africa will perhaps have the hardest time recovering economically given the lack of fiscal and monetary policy space to support the recovery. Besides, as development partners who could come to its aid grapple with economic stabilisation and recovery in their own countries, Africa will have to pull itself up, and AfCFTA provides a viable way to do so.
45.As I have highlighted, the AfCFTA is not simply about trade. It is about investment, economic diversification and industrialisation and jobs. It is about the 1.3 billion Africans and their livelihoods.
46.And, we are determined to make a success of its implementation despite the challenges and the negative impacts of the ongoing Covid-19 pandemic.
47.There is now reason to believe in a brighter outlook for doing business in Africa, due in large part to the operationalisation of the AfCFTA.
48.The implementation of the AfCFTA will provide the opportunity for African countries to boost intra-Africa trade, diversify their economies, scale production capacity and widen the range of products made in Africa, in particular boosting the production of manufactured goods. Indeed, the post-covid era will require a paradigm shift that promotes domestic production of basic consumer goods.
49.Of course, there are challenges to be overcome to fully obtain the potential of the AfCFTA project and these include: inadequate infrastructure, different customs procedures and trade facilitation issues, and trade finance.
50.The AfCFTA Secretariat and its partners, the African Union Commission, and member states are making determined efforts to address these constraints at the continental, regional and national levels to facilitate the free flow of cross-border trade and the successful implementation of the AfCFTA.
51.Africa's future is bright. 2021 is the year we have opened our doors to continental free trade among our countries. I believe that Africa's best days are ahead of us. There are huge opportunities that will enhance the prosperity and freedom of Africans. The AfCFTA is Africa's collective key to unlocking the opportunities.
52.I thank you once again for this opportunity to address this august gathering.
Thank you
